All governments are impotent in protecting individual investors

The Indian establishment, whether government, investigative agencies, regulators, or judiciary, does nothing to protect individual investors; in fact, it favours perpetrators of scams. Individual investors ought to take note and not expect that their rights would be safeguarded. It is, indeed, unbelievable that India’s highest ranking in Ease of Doing Business is for Investor Protection.

The fate of 13,000 individual investors in scam tainted NSEL was sealed by the striking down of an order to merge it with its parent, Financial Technologies (now called 63 moons), freeing the parent of responsibility for its mismanaging affairs of the NSEL. The matter was simple, truly. Any exchange, anywhere in the world, guarantees both sides of a transaction. Without this counter guarantee, no transaction can take place. NSEL lent money to traders, ostensibly without collateral of commodities, yet giving receipts for the collateral they did not have! Surely this tantamounts to fraud.

Government’s failure

The reason for striking it down was that the government failed to prove the merger was in public interest. The court stated that 13,000 individuals were ‘private interest’ and not ‘public interest’.

One can’t help wonder why individuals, who are, after all, members of the public, can be thus defined. The system does not protect their interest. This is surprising because, as a bloc, investors are the largest, bigger in numbers than farmers, or trade union employees, or of any caste, creed or religion, all of which are wooed by all political parties.

It is only when individual investors unite that they will have the force to assert their rights, till then, they will continue to be looted by a system that does not care for them.

I would often advise new entrants to stock markets to read Ayn Rand’s ‘Atlas Shrugged’. I think politicians, judiciary, bureaucracy et al would be similarly advised. The words of a character in the book, Fransisco D’Anconia, are worth repeating: “Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing — when you see that money is flowing to those who deal, not in goods, but in favours — when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed.”

The ingredients of a successful scam is 1. It should be a large enough amount, to be able to spread the moolah around; 2. Political connections; 3. A skin thicker than a rhino.

Those who commit small crime are severely punished; a CBI court sentenced six accused to a life-term for cheating a bank of small amounts such as ₹1 crore [3]. Sure, those guilty of fraud or scams must be punished, but the contrast is stark. Those who commit large scams go unpunished, those who do small ones get life imprisonment.

This is not something that would propel India to a global economic leader.

India Ratings has lowered GDP forecast to 7.3 per cent. If the system is unresponsive to individual investors, why, that would appear an exaggeration.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)

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